Gregory Birmingham v. PNC Bank, N.A.
Filing
AMENDED OPINION filed amending and superseding opinion dated 01/18/2017. Originating case number: 8:15-cv-00108-PWG,14-18432,14-00378 Copies to all parties.. [15-1800]
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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 15-1800
In Re:
GREGORY BIRMINGHAM,
Debtor.
-------------------------GREGORY BIRMINGHAM,
Plaintiff - Appellant,
v.
PNC BANK, N.A.,
Defendant - Appellee.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Paul W. Grimm, District Judge. (8:15cv-00108-PWG; 14-18432; 14-00378)
Argued:
October 26, 2016
Amended:
Decided:
January 18, 2017
January 20, 2017
Before THACKER and HARRIS, Circuit Judges, and Gerald Bruce LEE,
United States District Judge for the Eastern District of
Virginia, sitting by designation.
Affirmed by published opinion. Judge Lee wrote the opinion, in
which Judge Harris and Judge Thacker joined.
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ARGUED: John Douglas Burns, THE BURNS LAW FIRM, LLC, Greenbelt,
Maryland, for Appellant.
Daniel J. Tobin, BALLARD SPAHR LLP,
Washington, D.C., for Appellee.
ON BRIEF: Bryan J. Harrison,
Matthew G. Summers, BALLARD SPAHR LLP, Baltimore, Maryland, for
Appellee.
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LEE, District Judge:
The anti-modification clause in 11 U.S.C. § 1322(b)(2) of
the Bankruptcy Code protects a mortgagee from having its claim
in a Chapter 13 bankruptcy proceeding modified, if the mortgage
is secured “only by a security interest in real property that is
the debtor’s principal residence.”
11 U.S.C. § 1322(b)(2).
The
issue in this appeal is whether reference in the Deed of Trust
to escrow funds, insurance proceeds, or miscellaneous proceeds
constitute
additional
collateral
purposes of § 1322(b)(2).
incidental
property,
modification
incidental
property
for
We hold that these items constitute
which
protection
or
entitles
under
§
Appellee
1322(b)(2).
to
The
antidistrict
court’s determination is therefore affirmed.
I.
On
May
23,
(“Birmingham”)
bankruptcy.
2014,
filed
a
J.A. 342-45.
Appellant
voluntary
Gregory
petition
John
for
Birmingham
Chapter
13
One of the claims against Birmingham
is a mortgage in the amount of $343,101.87 held by Appellee PNC
Bank, N.A. (“PNC”), and secured by a deed of trust (“Deed of
Trust”)
Lane,
on
Birmingham’s
Beltsville,
primary
Maryland
residence
20705
at
11721
(“Property”).
Chilcoate
J.A.
329.
According to the District of Maryland Claims Register, there is
an arrearage on the mortgage of $93,386.58 as of June 23, 2015.
J.A. 329.
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Birmingham filed his Original Chapter 13 Bankruptcy Plan on
June 4, 2014.
J.A. 378.
At that point in time, the Property
was valued at only $206,400.
J.A. 362.
The Bankruptcy Plan
included a cram-down of PNC’s interest in the Property.
385-86.
J.A.
After a series of objections and amendments to the
Bankruptcy Plan, Birmingham filed a Complaint for Declaratory
Action pursuant to 28 U.S.C. §§ 2201-2202; 11 U.S.C. §§ 105(a),
506(a), 2201 (11721 Chilcoate Ln Beltsville, MD 20705).
378-400.
that
J.A.
Birmingham’s Complaint requested a declaration that
PNC’s
claim
be
treated
subject to modification.
as
a
partially
unsecured
claim
J.A. 399-400.
Birmingham argued that certain provisions of the Deed of
Trust required collateral other than real property, which would
remove the claim from 11 U.S.C. § 1322(b)(2)’s anti-modification
protection.
J.A.
397-99.
Birmingham
cited
three
specific
provisions of the Deed of Trust, involving escrow items (Section
Three),
property
insurance
proceeds
miscellaneous proceeds (Section Eleven).
(Section
Five),
and
J.A. 398.
PNC filed a
Motion to Dismiss the Adversary Complaint and an accompanying
memorandum, contending that the items referred to in the Deed of
Trust
provisions
property,”
which
cited
is
by
part
Birmingham
of
a
constituted
debtor’s
principal
“incidental
residence.
J.A. 674. Consequently, PNC argued that the additional items
would not expose the PNC mortgage to a cram-down.
4
J.A. 674.
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After
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Birmingham
filed
a
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response
to
the
motion
to
dismiss,
Bankruptcy Judge Wendelin I. Lipp granted the motion, noting
that
“the
issues
raised
by
[Birmingham]
were
identical
to
arguments that repeatedly have been denied by the Bankruptcy
Court for this District.”
J.A. 674.
Birmingham then appealed the Bankruptcy Court’s decision to
the United States District Court for the District of Maryland.
J.A.
405.
namely
Birmingham
that
the
raised
inclusion
the
of
same
arguments
miscellaneous
on
appeal,
proceeds,
escrow
funds, and insurance proceeds in the Deed of Trust constitute a
waiver
of
the
1322(b)(2).
J.A.
bankruptcy
proceeds,
anti-modification
court’s
escrow
422.
The
decision,
funds,
provision
district
holding
and
court
that
insurance
of
the
11
U.S.C.
affirmed
§
the
miscellaneous
proceeds
provisions
describe “benefits which are merely incidental to an interest in
real property” and generally are not “additional security for
purposes
of
§
1322(b)(2).”
J.A.
679.
The
district
court
further noted that the items at issue do not “have any value of
their own separate and apart from the Property and the [PNC Deed
of Trust]; to the contrary, they all exist only to give effect
to
the
PNC’s
security
interest,
which
otherwise
could
be
frustrated by a superior lien or by destruction or condemnation
of the Property.”
J.A. 681.
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Birmingham filed a timely appeal before this circuit.
685-88.
J.A.
This case was consolidated with a nearly identical case
that similarly originated in the District Court of Maryland,
Akwa v. Residential Credit Solutions, Inc., No. 14-cv-02703-GJH,
530 B.R. 309 (D. Md. 2015).
February
16,
2016.
ECF
The Akwa appeal was dismissed on
No.
69-2.
Accordingly,
only
the
Birmingham appeal is currently before the Court.
II.
This dispute requires us to determine whether the district
court properly concluded that the bankruptcy court did not err
in
dismissing
Specifically,
we
the
adversary
are
to
proceedings
analyze
whether
against
the
PNC.
district
court
correctly affirmed the bankruptcy court’s finding that PNC is
entitled to the anti-modification protections of 11 U.S.C. §
1322 (b)(2).
Because the district court sits as an appellate tribunal in
bankruptcy,
plenary.
Properties
our
review
of
the
district
court’s
decision
is
Bowers v. Atlanta Motors Speedway (In re Se. Hotel
Ltd.
P’ship),
(citation omitted).
99
F.3d
151,
154
(4th
Cir.
1996)
“We apply the same standard of review as
the district court applied to the bankruptcy court’s decision.”
Id.
“Findings
conclusions
of
of
fact
are
reviewed
law
are
reviewed
omitted).
6
de
for
novo.”
clear
Id.
error,
and
(citation
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A.
The
bankruptcy
Birmingham’s
12(b)(6).
court
complaint
J.A.
granted
PNC’s
under
Federal
The
district
675.
motion
Rule
of
court
to
Civil
dismiss
Procedure
applied
this
standard of review to the bankruptcy court’s decision.
same
Id.
A motion to dismiss under Federal Rule of Civil Procedure
12(b)(6) tests the legal sufficiency of the complaint.
v. Allain, 478 U.S. 265, 283 (1986).
granted
unless
relief.”
the
complaint
Papasan
The motion should be
“states
a
plausible
claim
for
Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012)
(citing
Ashcroft
v.
Iqbal,
556
U.S.
662,
679
(2009)).
In
considering a Rule 12(b)(6) motion, the Court “must accept as
true all of the factual allegations contained in the complaint,”
drawing “all reasonable inferences” in the non-moving party’s
favor.
E.I. du Pont de Nemours and Co. v. Kolon Indus., Inc.,
637 F.3d 435, 440 (4th Cir. 2011) (citations omitted).
court
is
not
obligated
conclusions
drawn
Freightliner
LLC,
from
550
to
assume
the
F.3d
the
facts
369,
374
veracity
alleged.
(4th
Cir.
of
the
The
legal
Adcock
2008)
v.
(citing
Dist. 28, United Mine Workers of Am., Inc. v. Wellmore Coal
Corp., 609 F.2d 1083, 1085-86 (4th Cir. 1979)).
The complaint must contain sufficient factual allegations,
taken as true, “to raise a right to relief above the speculative
level” and “nudge [the] claims across the line from conceivable
7
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to plausible.”
Pg: 8 of 24
Vitol, S.A. v. Primerose Shipping Co., 708 F.3d
527, 543 (4th Cir. 2013) (quoting Bell Atl. Corp. v. Twombly,
550
U.S.
544,
555,
570
(2007)).
The
facial
plausibility
standard requires pleading of “factual content that allows the
court to draw the reasonable inference that the defendant is
liable
for
the
misconduct
Charlottesville,
708
F.3d
Iqbal, 556 U.S. at 678).
not
a
probability
alleged.”
549,
554
Clatterbuck
(4th
Cir.
v.
City
2013)
of
(quoting
The plausibility requirement imposes
requirement
but
rather
a
mandate
that
a
plaintiff “demonstrate more than a ‘sheer possibility that a
defendant has acted unlawfully.’”
Francis v. Giacomelli, 588
F.3d 186, 193 (4th Cir. 2009) (quoting Iqbal, 556 U.S. at 678).
Accordingly,
a
complaint
is
insufficient
if
it
relies
upon
“naked assertions” and “unadorned conclusory allegations” devoid
of
“factual
complaint
enhancement.”
must
present
Id.
“‘enough
(citations
facts
to
omitted).
raise
a
The
reasonable
expectation that discovery will reveal evidence’ of the alleged
activity.”
US Airline Pilots Ass’n v. Awappa, LLC, 615 F.3d
312, 317 (4th Cir. 2010) (quoting Twombly, 550 U.S. at 556).
In addition to the complaint, the court will also examine
“documents
well
as
incorporated
those
Clatterbuck,
matters
708
F.3d
into
the
properly
at
557
complaint
subject
(citations
by
to
reference,”
judicial
omitted);
as
notice.
see
also
Matrix Capital Mgmt. Fund, LP v. BearingPoint, Inc., 576 F.3d
8
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172, 176 (4th Cir. 2009) (quoting Tellabs, Inc. v. Makor Issues
& Rights, Ltd., 551 U.S. 308, 322 (2007)).
B.
Certain provisions of the Bankruptcy Code are relevant to
this
appeal.
“Under
Chapter
13
of
the
Bankruptcy
Code,
individual debtors may obtain adjustment of their indebtedness
through
a
court.”
flexible
repayment
plan
approved
by
a
bankruptcy
Nobelman v. Am. Sav. Bank, 508 U.S. 324, 327 (1993).
The relationship between 11 U.S.C. § 506(a) and § 1322(b)(2) is
pertinent
to
this
circuit’s
decision
to
affirm
the
Birmingham’s complaint.
review
of
bankruptcy
the
district
court’s
court’s
dismissal
of
Section 506(a) is used in conjunction
with § 1322 to allow modification, or bifurcation, of a secured
creditor’s claim into secured and unsecured portions when the
claim exceeds the value of the secured property.
Nobelman, 508
U.S. at 328.
In Nobelman, the Supreme Court examined the nexus between
claim-bifurcation
under
§
506(a)
and
the
anti-modification
provision of § 1322(b)(2) to ascertain whether a debtor could
bifurcate
a
single,
under-secured
residential
mortgage
into secured and unsecured components pursuant to § 506(a).
at 326.
claim
Id.
The debtor in Nobelman argued that § 1322(b)(2)’s anti-
modification provision applied only to the secured component of
her mortgage claim, as defined in § 506(a).
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Id.
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Section 506(a) states that:
(a)(1) An allowed claim of creditor secured by a lien
on property in which the estate has an interest . . .
is a secured claim to the extent of the value of such
creditor’s interest in the estate’s interest in such
property . . . and is an unsecured claim to the extent
that the value of such creditor’s interest is less
than the amount of such
allowed claim.
Such value
shall be determined in light of the purpose of the
valuation and of the proposed disposition or use of
such property, and in conjunction with any hearing on
such disposition or use or on a plan affecting such
creditor’s interest.
11 U.S.C. § 506(a).
Accordingly, under § 506(a), “an allowed
claim secured by a lien on the debtor’s property is a secured
claim to the extent of the value of the property; to the extent
the claim exceeds the value of the property, it is an unsecured
claim.”
Nobelman, 508 U.S. at 328 (internal quotation marks
omitted).
Notwithstanding, § 1322(b)(2) provides:
(b) Subject to subsections (a) and (c) of this
section, the plan may—
. . .
Modify the rights of holders of secured claims,
other than a claim secured only by a security
interest in real property that is the debtor’s
principal residence . . . .
11
U.S.C.
precludes
§
1322(b)(2).
reduction
or
This
cramming
“anti-modification”
down
the
value
of
provision
a
claim
secured by an interest in real property that is the debtor’s
principal residence.
In other words, a claimant’s interest in
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real property that is secured solely by the debtor’s principal
residence may not be bifurcated.
C.
Congress clarified the meaning of a key term in the antimodification
clause,
“debtor’s
principal
residence,”
in
the
Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCP
Act”) of 2005.
The Bankruptcy Code now defines the term as “a
residential structure if used as the principal residence by the
debtor, including incidental property, without regard to whether
that
structure
is
attached
101(13A)(A)(emphasis
to
real
property.”
The
BAPCP
added).
Act
11
also
U.S.C.
§
defined
“incidental property,” as it relates to a debtor’s principal
residence, as follows:
(A) property commonly
residence in the area
located;
conveyed with a principal
where the real property is
(B) all easements, rights, appurtenances, fixtures,
rents, royalties, mineral rights, oil or gas rights or
profits, water rights, escrow funds, or insurance
proceeds;
(C) all replacements or additions.
11 U.S.C. § 101(27B).
The Code defines a security interest as a
“lien created by an agreement.”
11 U.S.C. § 101(51).
Moreover,
a lien is defined as a “charge against or interest in property
to secure a payment of a debt or performance of an obligation.”
11 U.S.C. § 101(37).
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With
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this
framework
in
Pg: 12 of 24
mind,
and
for
the
reasons
that
follow, we hold that the district court’s decision to affirm the
bankruptcy
court’s
correct.
PNC’s
dismissal
loan
principal
residence
Bankruptcy
Code’s
and
of
Birmingham’s
was
secured
not
any
solely
additional
anti-modification
complaint
by
bifurcation sought by Birmingham.
Birmingham’s
collateral.
provision
was
The
precluded
the
Consequently, Birmingham’s
complaint was appropriately dismissed.
III.
The Birmingham Deed of Trust not only grants PNC a security
interest
in
protections
protections
the
for
are
Property,
PNC.
not
but
However,
additional
also
provides
saliently,
collateral
and
the
do
additional
auxiliary
not
remove
PNC’s claim from the protection of § 1322(b)(2).
A.
Of
particular
importance
to
this
Court’s
analysis
are
Sections 3, 5, and 11 of the Deed of Trust, all of which will be
analyzed in turn.
Section 3 of the Deed of Trust pertains to
escrow funds and states, in pertinent part, the following:
Funds for Escrow Items. Borrower shall pay to Lender
on the day Periodic Payments are due under the Note,
until the Note is paid in full, a sum (the “Funds”) to
provide for payment of amounts due for: (a) taxes and
assessments and other items which can attain priority
over this Security Instrument as a lien or encumbrance
on the Property; (b) leasehold payments or ground
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rents on the Property, if any; (c) premiums for any
and all insurance required by Lender under Section 5;
and (d) Mortgage Insurance Premiums, if any, or any
sums payable by
Borrower to Lender in lieu of the
payment
of
the
Mortgage
Insurance
premiums
in
accordance with the provisions of Section 10.
These
items are called “Escrow Items.”
. . .
If there is a surplus of Funds held in escrow, as
defined under [the Real Estate Settlement Procedures
Act (“RESPA”)], Lender shall account to Borrower for
the excess funds in accordance with RESPA.
If there
is shortage of funds held in escrow, as defined under
RESPA, Lender shall notify Borrower as requested by
RESPA, and Borrower shall pay to Lender the amount
necessary to make up the shortage in accordance with
RESPA, but in no more than 12 monthly payments.
Deed of Trust § 3, J.A. 621-22.
Section
5
of
the
Deed
of
Trust
addresses
the
topic
property insurance, and provides as follows:
Borrower shall keep the improvements now existing or
hereafter erected on the Property insured against loss
by fire, hazards included within the term “Extended
coverage,” and any other hazards including, but not
limited to, earthquakes and floods, for which Lender
requires insurance . . . .
If Borrower fails to maintain any of the coverage
described above, Lender may obtain insurance coverage,
at Lender’s option and Borrower’s expense.
Lender is
under no obligation to purchase any particular type or
amount of coverage.
Therefore, such coverage shall
cover Lender, but might or might not protect Borrower,
Borrower’s equity in the Property, or the contents of
the Property, against any risk, hazard or liability
and might provide greater or lesser coverage than was
previously in effect.
. . . .
Borrower hereby assigns to Lender (a) Borrower’s
rights to any insurance proceeds in an amount not to
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exceed the amounts unpaid under the Note or this
Security Instrument, and (b) any other of Borrower’s
rights (other than the right to any refund of unearned
premiums
paid
by
Borrower)
under
all
insurance
policies covering the Property, insofar as such rights
are applicable to the coverage of the Property.
Lender may use the insurance proceeds either to repair
or restore the Property or to pay amounts unpaid under
the Note or this Security Instrument, whether or not
then due.
Deed of Trust § 5, J.A. 623-24.
Lastly,
Section
11
of
the
Deed
of
Trust
discusses
miscellaneous proceeds and contains the following language:
Assignment of Miscellaneous Proceeds; Forfeiture.
Miscellaneous Proceeds are hereby assigned to
shall be paid to Lender.
All
and
. . . .
In the event of a partial taking, destruction, or loss
in value of the Property in which the fair market
value of the Property immediately before the partial
taking, destruction, or loss in value is less than the
amount of the sums secured immediately before the
partial taking, destruction, or loss in value, unless
the Borrower and Lender otherwise agree in writing,
the Miscellaneous Proceeds shall be applied to the
sums secured by this Securing Instrument whether or
not the sums are then due.
Deed of Trust § 11, J.A. 626.
Miscellaneous Proceeds include:
[A]ny compensation, settlement, award of damages, or
proceeds paid by any third party (other than insurance
proceeds paid under the coverages described in Section
5) for: (i) damage to, or destruction of, the
Property; (ii) condemnation or other taking of all or
any part of the Property; (iii) conveyance in lieu of
condemnation;
or
(iv)
misrepresentations
of,
or
omission as to, the value and/or condition of the
Property.
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Deed of Trust ¶ M.
The issue presented is whether these provisions of the Deed
of Trust constitute sufficient collateral so that PNC’s interest
is secured by more than Birmingham’s principal residence.
hold
that
the
aforementioned
provisions
do
not
We
entitle
Birmingham to the bifurcation sought.
B.
Birmingham argues that Sections 3, 5, and 11 of the Deed of
Trust provide additional security for PNC’s interest such that
it is no longer secured solely by an interest in real property.
Appellant Br. at 19-25.
These items, however, are incidental
property frequently conveyed in a deed of trust and defined in
11 U.S.C. §§ 101(27B) and 101(13A)(A) as part of a debtor’s
principal residence.
The case Allied Credit Corp. v. Davis (In re Davis), 989
F.2d 208 (6th Cir. 1993) is illustrative.
There, the Sixth
Circuit found that “[i]tems which are inextricably bound to the
real property itself as part of the possessory bundle of rights”
do not extend a lender’s security beyond the real property.
at 213; see also Akwa, 530 B.R. at 313 (D. Md. 2015).
topic
of
insurance,
the
Davis
court
explained
that
Id.
On the
“hazard
insurance is merely a contingent interest — an interest that is
irrelevant until the occurrence of some triggering event and not
an
additional
security
interest
15
for
the
purposes
of
§
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1322(b)(2).”
(emphasis
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In re Davis, 989 F.2d at 211 (citation omitted)
added).
This
reasoning
similarly
applies
to
miscellaneous proceeds and escrow funds that are tied to the
real property at issue.
See In re Ferandos, 402 F.3d 147, 156
(3d Cir. 2005) (“[F]unds for taxes and insurance, paid over and
placed in escrow, exist precisely for the purpose of paying said
taxes
and
connection
insurance
with
the
—
a
cost
ownership
incurred
of
real
by
the
property.”);
debtor
see
in
also
Kreitzer v. Household Realty Corp. (In re Kreitzer), 489 B.R.
698, 703-06 (Bankr. S.D. Ohio 2013) (holding that a security
interest which residential mortgage lender took in miscellaneous
proceeds was not an additional security interest that the lender
possessed
other
than
in
the
residential
mortgage
property
itself).
The
district
court
in
Akwa,
which
involved
the
same
standard Fannie Mae/Freddie Mac deed of trust that is at issue
in this appeal, correctly noted:
[T]he lender may collect funds for escrow to ensure
that all property-related payments, like taxes and
ground rents, are paid.
Likewise, the Deed of Trust
also permits the lender to hold insurance proceeds if
an insurer pays for repairs to the house to ensure
that the lender’s investment — the real property — is
repaired to lender’s satisfaction.
The same is true
for miscellaneous proceeds paid by a third party,
which the lender can use for repairs or restoration.
Akwa, 530 B.R. at 313-14.
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PNC
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accurately
states
Pg: 17 of 24
that
this
perspective
has
been
recognized by a number of courts in analogous circumstances.
See Abdosh v. Ocwen Loan Servicing (In re Abdosh), 513 B.R. 882,
886 (Bankr. D. Md. 2014), aff’d sub nom. Abdosh v. Ocwen Loan
Servicing, LLC, No. CIV. PJM 14-2916, 2015 WL 4635103 (D. Md.
July 30, 2015) (noting that “[t]here is no need to re-visit in
detail this clear legal issue”); In re Kreitzer, 489 B.R. at
703-06 (discussing miscellaneous proceeds); In re Mullins, No.
11-11176C-13G, 2012 WL 2576625, at *2 (Bankr. M.D.N.C. July 3,
2012) (discussing escrow funds); In re Inglis, 481 B.R. 480,
482-83 (Bankr. S.D. Ind. 2012) (“[U]nder the express terms of
these provisions . . . a lender does not lose its § 1322(b)(2)
protection
‘escrow
by
taking
funds’
a
security
are
part
of
interest
the
in
‘incidental
escrow
funds
property’
as
which
comprise ‘the debtor’s principal residence.’”); In re Leiferman,
No. BR 10-40718, 2011 WL 166170, at *2 (Bankr. D.S.D. Jan 19,
2011) (analyzing miscellaneous proceeds).
In his opposition, Birmingham cites a series of cases where
courts
have
held
that
beyond real property.
certain
additional
collateral
existed
For instance, Birmingham cites the Third
Circuit’s decision Hammond v. Commonwealth Mortg. Corp. of Am.,
27 F.3d 52 (3d Cir. 1994) for the proposition that “supplemental
collateral in a deed of trust will cause a waiver of the antimodification rights of 11 U.S.C. § 1322(b).”
17
Appellant Br. at
Appeal: 15-1800
Doc: 81
43-44.
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Pg: 18 of 24
However, the lien in Hammond explicitly “covered more
than the real property.” See Abdosh, 513 B.R. at 886.
The security contrivance in Hammond created “an additional
security
interest
in:
any
and
all
appliances,
machinery,
furniture and equipment (whether fixtures or not) of any nature
whatsoever.”
Hammond,
marks omitted).
27
F.3d
at
53-54
(internal
quotation
Here, the Deed of Trust does not expressly
attempt to take a security interest in additional collateral.
As
the
Akwa
provisions
court
concluded,
“explicitly
ties
the
the
language
funds
to
found
in
ensuring
that
lender’s collateral — the real property — is preserved.”
530 B.R. at 313.
these
the
Akwa,
Accordingly, Birmingham’s reliance on Hammond
is misplaced.
Relatedly, Birmingham’s arguments premised on the holdings
of other cases cited in his brief are inapposite for the same
reason: the security instruments at issue explicitly granted the
debtee an interest secured by more than just real property.
For
example, In re Ennis – in which we found the anti-modification
clause of § 1322(b)(2) inapplicable to a security agreement for
personal
property,
provides
no
i.e.
guidance
for
a
mobile
a
home
home
on
mortgage
leased
that
property
includes
–
the
typical incidental benefits intended to protect the interest in
real property.
See Ennis v. Green Tree Servicing, LLC (In re
Ennis), 558 F.3d 343, 347 (4th Cir. 2009); see also Scarborough
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v. Chase Manhattan Mortg. Corp. (In re Scarborough), 461 F.3d
406, 412 (3d Cir. 2006) (holding that when a mortgage lender
takes
an
interest
in
real
property
that
includes
income
producing property, the lender’s interest is also secured by
property that is not the debtor’s principal residence, and its
claim may be modified); Lomas Mortg., Inc. v. Louis, 82 F.3d 1,
7
(1st
Cir.
modification
1996)
of
a
(finding
secured
that
claim
§
on
1322(b)(2)
a
does
multi-unit
not
property
bar
in
which one unit is debtor’s principal residence and the security
interest
extends
to
other
income-producing
units);
Sapos
v.
Provident Inst. of Sav. in Town of Boston, 967 F.2d 918, 921 (3d
Cir.
1992)
(holding
that
the
anti-modification
provision
is
inapplicable where the note was also secured by wall-to-wall
carpeting, rents, and profits), overruled on other grounds by
Nobelman
v.
Commonwealth
Am.
Sav.
Mortg.
Bank,
Corp.,
508
895
U.S.
F.2d
324
123,
(1993);
128
(3d
Wilson
Cir.
v.
1990)
(finding § 1322(b)(2) not applicable where a mortgage agreement
stated that the lender had “a security interest in appliances,
machinery,
furniture,
and
equipment”),
abrogated
on
other
grounds by Nobelman, 508 U.S. 324.
Sections 3, 5, and 11 of the Deed of Trust do not create
‘‘separate or additional security interest[s], but [are] merely
[] provision[s] to protect the lender’s security interest in the
real property.’’
Akwa, 530 B.R. at 314 (quoting In re Kreitzer,
19
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489 B.R. 698, 705-06).
found,
as
proceeds,
a
matter
and
Pg: 20 of 24
Accordingly, the district court properly
of
law,
miscellaneous
that
escrow
proceeds
are
funds,
insurance
incidental
property
that do not constitute separate security interests.
C.
Birmingham
additionally
relies
on
a
line
of
cases
from
North Carolina bankruptcy courts that ostensibly found “where an
assignment of alternative collateral exists in a deed of trust
other
than
real
property,
the
lender
modification of its secured debt.”
will
be
subject
to
Appellant Br. at 26 (citing
In re Bradsher, 427 B.R. 386 (Bankr. M.D.N.C. 2010); Bradshaw v.
Asset Ventures, LLC (In re Bradshaw), Nos. 13-06176-8-RDD, 1400023-8-RDD, 2014 WL 2532227 (Bankr. E.D.N.C. June 4, 2014); In
re Murray, No. 10-10125-8-JRL, 2011 WL 5909638 (Bankr. E.D.N.C.
May
31,
2011);
In
re
Martin,
444
B.R.
538
(Bankr.
M.D.N.C.
2011); In re Hughes, 333 B.R. 360 (Bankr. M.D.N.C. 2005)).
As
the district court in this case correctly stated, however, the
loan documents in both Bradsher and Hughes “expressly provided
that
escrow
loan.”
payments
constituted
additional
security
for
the
J.A. 680 (citing Bradsher, 427 B.R. at 388-89 (“[T]he
loan documents purport to provide a security interest for the
indebtedness secured by the deed of trust in escrow funds in
addition
to
a
security
interest
in
the
residential
land
and
housing structure.”); Hughes, 333 B.R. at 363 (noting that the
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loan documents “require the borrower to pledge the escrow funds
as ‘additional security’”)). Hence, the language of the loan
documents
in
both
Bradsher
and
Hughes
is
unequivocally
distinguishable from the language present in the Birmingham Deed
of Trust.
The holdings of Bradsher and Hughes therefore do not
apply to this case.
Moreover,
in
Mullins,
the
same
judge
who
presided
over
Bradsher held that nothing in the deed of trust “suggests that a
security interest is also being granted in escrow funds.
Nor is
there any language in the escrow provisions [] purporting to
create a security interest in escrow funds to be paid by the
[debtors].”
In re Mullins, 2012 WL 2576625 at *2.
Further, in
Bynum v. CitiMortgage, Inc. (In re Bynum), Nos. 12-10660, 122031,
2012
WL
2974694
(Bankr.
M.D.N.C.
July
19,
2012),
the
bankruptcy judge found that a standard Fannie Mae/Freddie Mac
deed of trust “do[es] not contain elements required to create a
security interest in Escrow Funds.”
To
the
extent
that
Id. at *3.
Birmingham
also
relies
upon
In
re
Daniels, No. 15-666-5-SWH, 2015 WL 9283153 (Bankr. E.D.N.C. Dec.
18, 2015), a case that addresses the district court decision
that is currently before us, the Court in Daniels stated that
“Birmingham
involved
a
deed
of
trust
that
did
not
contain
explicit language creating a security interest in escrow funds.”
Id. at *3 (citation omitted).
Highlighting this difference, the
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Court in Daniels found that “Birmingham’s rejection of Bradsher
and Murray is not instructive.”
Id.
In short, the North Carolina bankruptcy courts agree that
the anti-modification clause applies to the Fannie Mae/Freddie
Mac Deed of Trust before us in this case.
We thus have no
occasion
to
consider
–
language
in
a
deed
the
effect
purporting
to
–
if
any
create
a
of
additional
separate
security
interest in escrow funds, insurance proceeds, or miscellaneous
proceeds, in light of our interpretation of § 1322(b)(2).
D.
Birmingham also argues that both the bankruptcy court and
the
district
court
should
have
looked
to
Maryland
law
to
determine whether the Deed of Trust created additional security
interests in escrow funds, insurance proceeds, and miscellaneous
proceeds
as
Bankruptcy
“real
Code,
property.”
however,
Appellant
explicitly
Br.
at
defines
21-24.
The
“incidental
property” to a debtor’s principal residence, which includes both
escrow
funds
and
insurance
proceeds.
11
U.S.C.
§
101(27B).
State laws are suspended if they conflict with the Bankruptcy
laws.
Butner v. U.S., 440 U.S. 48, 54 n.9 (1979).
Thus, it is
not necessary for us to examine Maryland law on this issue.
Even if Maryland law were to apply, it is far from clear
that the resulting holding would be favorable for Birmingham.
A
security interest is created, under Maryland law, when there is
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language present in the security instrument that leads to the
logical conclusion that it was the intention of the parties to
create
Inc.
v.
Larrimore, 628 A.2d 215, 220 (Md. 1993) (citation omitted).
We
have
a
security
already
found
language
wherein
funds,
a
interest.
that
insurance
Tilghman
the
Deed
security
of
interest
proceeds,
or
Hardware,
Trust
was
did
not
granted
contain
in
miscellaneous
escrow
proceeds.
Therefore, Birmingham’s argument with respect to the application
of Maryland law is unavailing.
Finally, the policy arguments that Birmingham puts forth
are
similarly
ineffective.
Birmingham
asks
this
circuit
to
ignore various cases that characterize escrow funds, insurance
proceeds, and miscellaneous proceeds as “part and parcel” of
real property.
Appellant Br. at 44 (citing In re Kreitzer, 489
B.R. at 704; In re Ferandos, 402 F.3d at 151; Davis, 989 F.2d at
211;
In
re
Rosen,
208
B.R.
345,
354
(D.N.J.
1997)).
Additionally, Birmingham relies on In re Escue, 184 B.R. 287
(Bankr. M.D. Tenn. 1995) to contend that the bankruptcy court
erred
by
not
finding
issue
constitute
that
the
supplemental
pertinent
incidental
collateral,
legislative history of the Bankruptcy Code.
48-49.
in
light
items
at
of
the
Appellant Br. at
The Escue decision came before §§ 101(13A)(A) and (27B)
were enacted, however.
Furthermore, as with many of the other
cases that Birmingham has cited, the deed of trust at issue in
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Escue expressly created a security interest in certain fixtures
with granting language that is wholly absent from the Birmingham
Deed of Trust.
Consequently, Birmingham’s reliance on Escue is
misplaced.
Characterizing
escrow
funds,
insurance
proceeds,
and
miscellaneous proceeds as additional security for § 1322(b)(2)
“would completely eviscerate the anti-modification exception of
§ 1322(b)(2) because many deeds of trust which encumber improved
real property contain these provisions to protect the lender’s
investment
in
the
real
property.”
(internal quotation marks omitted).
Akwa,
530
B.R.
at
313
Moreover, as the district
court noted, Congress did not intend for Birmingham’s position
and “this principle cannot be squared with an interpretation
that would render the anti-modification provision inapplicable
to virtually all residential mortgages.”
J.A. 682.
IV.
The Deed of Trust on Birmingham’s residence is secured only
by real property that is also Birmingham’s principal residence.
Escrow funds, insurance proceeds, and miscellaneous proceeds do
not constitute additional collateral.
Accordingly, Birmingham’s
complaint fails to state a claim for relief that is plausible.
For
the
foregoing
reasons,
the
district
court’s
judgment
is
affirmed.
AFFIRMED
24
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